WASHINGTON/UNITED NATIONS, Jan 14 (Reuters) - It was a bad start for the U.S. president and the leader of the world's newest country.

At their first meeting, less than three months after South Sudan's independence, Barack Obama challenged President Salva Kiir with what he said was U.S. evidence that Kiir's government was arming rebels fighting the Sudanese government in Khartoum.

Kiir told Obama his information was wrong, a denial that U.S. officials regarded as dishonest and the short session ended in "disaster," said Alex de Waal, a Tufts University professor deeply involved in Sudan peacemaking who said he was briefed by both sides after the meeting.

Relations between Obama and Kiir "never really healed" after that, said Princeton Lyman, the U.S. envoy for Sudan at the time. The two presidents have not met since.

The difficult encounter during the 2011 U.N. General Assembly was a wake-up call for the Obama administration.

After playing a major role in bringing South Sudan into being, the United States was beginning to worry at the highest level about the country's rampant corruption, tension with Sudan, failure to build institutions and flagrant human rights abuses.

Now, political and ethnic friction that have brought South Sudan to the brink of civil war have eroded much of the goodwill in Washington toward the leadership of a country whose independence from Sudan two-and-a-half years ago was seen as a U.S. foreign policy success.

Since mid-December, fighting that broke out between rival factions of South Sudan's military has escalated, broadly following ethnic fault lines. The death toll has climbed well above an initially estimated 1,000 killed. One analyst for the Brussels-based International Crisis Group, Casie Copeland, has estimated close to 10,000 people may have been killed.

The White House is so dismayed that it is considering imposing targeted sanctions on South Sudan to try to bring peace between Kiir's government and a rebel faction led by his former Vice President Riek Machar, Reuters reported on Friday.

It is a stunning departure from the support previously given to South Sudan by Obama administration figures like former ambassador to the United Nations Susan Rice, current envoy to the United Nations Samantha Power, and other senior U.S. officials as it broke away from the predominantly Muslim Sudan after decades of civil war.

Rice in particular was a staunch defender of South Sudan against the government of Khartoum during her time in New York.

The cause of the south, where most people are Christians or follow traditional religions, was a favorite one of U.S. human rights groups, Christian evangelicals and members of Congress for decades. In the United States, the conflict was often seen as an uneven fight between often radical Arab governments in the north and an impoverished south.

Top U.S. policymakers are dismayed by the current chaos in South Sudan. "They are all horrified," a former senior U.S. official said.

MORE TENSION WITH OBAMA

Though South Sudan was founded two years into Obama's first term, the Bush administration is mostly credited with helping it win independence after a 2005 peace accord with Sudan. Kiir often wears a black cowboy hat similar to one given to him by President George W. Bush who he met in the Oval Office at least three times.

Relations with Obama are less amicable. The two presidents again held a fraught conversation when a territorial dispute known as the Heglig crisis blew up in April, 2012.

Obama warned Kiir in a phone call that U.S. intelligence had detected South Sudanese forces' preparations for an incursion across a disputed border with Sudan, said a person with knowledge of the discussion.

As he had done in their face-to-face meeting, Kiir disputed the information. But a week later, southern forces did cross the border and seized oil fields, to the exasperation of the United States. Details of the Obama-Kiir disagreements were first reported by McClatchy Newspapers.

The South Sudanese government declined to comment on the Obama encounters with Kiir but Charles Manyang, foreign affairs ministry undersecretary, said: "Our foreign relations with America so far up to today are OK."

Even Rice, now Obama's national security adviser, cooled toward South Sudan over time, several former officials who worked with her said.

She was "distressed" at Kiir's performance in the Obama meeting and "became deeply concerned about some of the directions of things (that) were happening," former envoy Lyman said.

All the same, the United States represented by Rice took a lead role in blocking the U.N. Security Council from following through on a threat of sanctions against South Sudan and Sudan, U.N. Security Council diplomats said. The United States argues that just the threat of sanctions helped solve the crisis.

Applying U.N. sanctions at the time "would have been a major step against a close friend," said Lyman.

Several U.N. Security Council diplomats said they were concerned that the unwillingness of the United States to support those sanctions might have encouraged recklessness on Kiir's part. But U.S. officials dispute that assessment.

A new crisis blew up in the South Sudanese capital, Juba. In July 2013, Kiir dismissed Machar and his entire cabinet, and violence broke out in the country's Jonglei State. Secretary of State John Kerry called Kiir and urged a change in course.

"We sent a very clear message to all parties, including the government ... that that had to stop," said Gayle Smith, senior director for global development and humanitarian issues at the White House's National Security Council.

Last summer, four of Juba's staunchest U.S. supporters also wrote to Kiir complaining of ethnic violence by the country's security forces, including rape and murder, and a culture of impunity for vast financial corruption.

But things only got worse in December when Kiir accused his vice president of trying to launch a coup after fighting erupted between rival soldiers in barracks near the capital. The conflict quickly spread to other areas.

"Perhaps we could have been more strident and aggressive in following up what we stressed at that time and ... more demanding of the U.S. government to be more present on the ground in South Sudan at a higher level," said one of the letter's signers, John Prendergast, co-founder of the Enough Project anti-genocide group.

SHARED BLAME

Both Sudanese and Western analysts place most of the blame for South Sudan's failings on its leaders, who they say were unable to make the transition from commanding an armed liberation movement to governing one of the world's least-developed countries.

There also seemed to be a growing disconnect between South Sudan and its international backers, particularly the United States. The South Sudanese, having secured independence, became less inclined to listen to outsiders, current and former U.S. officials said.

The United States and the United Nations were slow to spot signs of trouble in South Sudan because they were overly eager to see the country succeed, diplomats said.

"There are a lot of red flags that (the international community) missed. It was very clear that South Sudan was heading on the wrong track," said Peter Biar Ajak, executive director of the Juba-based Center for Strategic Analyses and Research.

"You didn't see a united response from the international community. They clearly wanted things to work out, but they didn't exert enough" pressure.

For months during 2013, as the situation deteriorated, two key U.S. policy posts - special envoy for the Sudans and chief of Africa policy at the State Department - were vacant.

"When all of this was deteriorating, there was no one in charge," said Andrew Natsios, special envoy for Sudan under Bush. "Neglect and lack of influence is the best way to put it.

Smith, at the National Security Council, said South Sudan has received "massive attention across the U.S. government."

U.N. experts miscalculated the depths of ethnic and political division in the country, some diplomats say. In a closed-door Security Council meeting after Kiir fired Machar and the cabinet, U.N. envoy Hilde Johnson predicted that a new, more technocrat-leaning cabinet might lessen tensions, a senior Western diplomat said.

But the cabinet dismissals only increased friction between Kiir's Dinka tribe and ethnic Nuers like Machar and many of the fired ministers.

"In retrospect, we should have thought that if you exclude essentially one of the largest tribes from the central government that's a recipe for trouble sooner or later," the diplomat said. (Additional reporting by Carl Odera in Juba and Pascal Fletcher in Johannesburg; Editing by Alistair Bell and Eric Walsh)